Month: April 2016

… and a good time to grasp opportunities

Reading the press and watching TV news covering the current impeachment process of Dilma Roussef, you might think that Brazil is descending into chaos. But for Brazilian companies, and for 99% of the population, it’s very much business as usual. And for international companies, now is a great time to grasp the nettle and exploit this market.

I’ve just returned from meetings with several recent start-ups in Brazil, and can vouch for the continuing high level of enthusiastic confidence that they will achieve great economic success. Nobody is fazed by the political situation – almost everyone in business is looking forward to Dilma going, even if so many other untrustworthy politicians will remain in office, as it’s a first and big step towards improving the country.

It’s true that the economy has nose-dived in the last year, but this is more down to the depressed mining sector, that has become increasingly reliant on the Chinese market, which has largely dried up. The spark that came with the discovery of huge oil reserves under the sea off Rio has dampened more because of the fall in oil prices than the “car wash” corruption scandal at Petrobras.

Unfortunately, the corruption scandals have further discouraged foreign direct investment and business expansion in Brazil. The reality is that corruption is largely off the map for most businesses. I’ve set up, managed and grown several companies there since 2006, and have never in that time even seen suggestions of bribery or false accounting. That’s not to say it doesn’t exist – when it comes to government or very large corporate contracts, clearly it does. I can see how some Brazilian accounting practices, such as allowing small businesses to work on “Lucro Presumido” (presumed profit) could support it. However, I believe that international businesses starting up in Brazil can be confident that they won’t get involved in any way.

Confidence in Brazil has picked up a great deal in the last few months, as evidenced by the improvement both in the exchange rate and the stock exchange (see charts). The exchange rate is still around half that of 3 years ago, and looks to have stabilised.

Whilst this – in addition to tariff barriers – can make the Brazilian market unattractive for most exporters, it’s very good value now for setting up in-country operations such as Shared Service Centres, in/out-sourcing, and local manufacturing for the MERCOSUR countries.

The overwhelmingly young workforce is increasingly well-educated, and it’s easy to hire professionals in most sectors who have very good English. In my experience, productivity levels can be impressive. There are some interesting barriers to overcome. Brazilian employment laws are archaic and byzantine, all staff are “unionised” (but not in the sense understood in other countries), annual salary increases are mandated, the paperwork can be formidable. However, all these can be addressed in a straightforward way, with some professional help, and the advantages of having 3 or 4 professionals for the price of one definitely outweigh the disadvantages.

It’s also one of the most pleasant countries to live, work and do business. If the weather alone doesn’t lift one’s spirits, the enthusiasm and “can do” attitude of the Brazilian people will.

Great, so you’ve decided that you can both save money and improve business efficiency by setting up a Shared Services Centre or “Insourcing” (wholly-owned Outsourcing) operation abroad. Excellent. Now where? There are hundreds of possible destinations. You’ll naturally be putting cost evaluation at the top of your checklist, but there are lots of other considerations. Leaving aside the financial, legal and technical matters that everyone thinks about, there are some others that frequently get neglected or overlooked:

Does the time zone work?

How much real-time communication is needed with your other offices? Whilst it’s usually possible to hire staff who work nights or non-standard shifts, it’s much more difficult to retain them, and it’s especially difficult to get good management. If it’s data processing work, then work on the other side of the planet where the time difference will help (they work while you sleep), if it’s high-contact, think North-South.

Will the team have the right language skills?

While you may assume the staff you’ll hire will speak and write English, it’ll be their second language in almost all countries, and there are many kinds of English, not just British and American! Think carefully about what communications you will need, written and spoken.

How easy will it be to hire and retain staff in the future?

Even if it looks easy to hire the staff you need now, think ahead. If you’ve picked a location which other multinationals are planning to set up in, it’s likely that the competition for skilled staff will drive wage inflation and increase employee turnover.

Will applicants be right for the job?

There’s probably nothing that gets lost in translation more than a job description! Straight translations hardly ever work, even for defined qualifications – advertising needs to be drafted in consultation with local HR specialists to ensure the right cultural angles are considered.

What other skill sets are readily available?

You’ll know exactly what operations you want performed now, and the skill sets you need for those, but again, think ahead. Most businesses setting up abroad only think about moving specific tasks. However, once it’s successful, you should want your SSC to take on a wider scope and responsibility – and remember that the higher-skilled the job, the bigger the saving by doing it overseas instead of back home.

How fast are wages likely to rise?

Salaries in developing countries almost always rise faster than back home – annual rates of 8-15% are common. In some countries, wage rises are government mandated. And, of course, any merit increases go on top! You need to plan costs for 5 years ahead and plan to stay on top of achieving productivity improvements year after year.

How easy is it to get to?

With good local management, you won’t need to rely on expats located there – but to be fully successful, you will need a lot of regular visits from the mother ship, both by those who can give training and support and by some of the top CXO team. Enthusiasm for travel quickly wears thin if it’s a horrible journey – you and your colleagues will need to travel there year after year. Also, when things go wrong, you may need to get people there in a hurry. So don’t only look for locations with daily direct flights, but consider the door-to-door journey time and the jetlag effect.

Is it a nice place to visit?

OK, you’ll only ever be going on business – but let’s face it, you and your colleagues are much more likely to visit frequently (and thereby help develop the operation) if you enjoy going there – so this really is a critical consideration. Good weather, tourist attractions, food that you like and a happy culture all help.

How will your staff commute to and from work?

Understanding this can be critical to staff retention and operational management. If the only way home is by bus, and the last one leaves at 18:30, they won’t ever stay late. If they have a 2-hour commute each way by train, any new job offer that comes along with a shorter commute could be very tempting! These aren’t exaggerations, but true examples applying to many staff in two common outsourcing locations.

How useful will it be as a base to develop new regional business?

You might only be interested in setting up a SSC today, but, depending on your Company’s business, it’s well worth thinking about how the operation could serve as a future sales and marketing hub for the country or region where you are setting up. Setting up the initial operation can be costly, but adding functionality later is usually straightforward and cheap.

With the pound dropping in value, and many incentives available from the likes of UKTI, British manufacturers should be taking advantage by prioritising their export strategies. Many, however, seem to be falling into the trap of simply doing nothing – and there’s a real danger that could be a result of uncertainty over the outcome of the EU in-out referendum.

“Out” campaigners say that we need to be out of Europe to open up trade – but in fact there are no reasons not to do business anywhere in the world right now! You’d never guess it from the hype, but there are no countries where the UK would be likely to want to seek an independent trade deal where there isn’t an existing attractive EU deal that we can take advantage of. And, whilst exchange rate volatility may worry importers, it should be seen as an incentive by exporters.

Smaller UK companies have an unfortunate tradition of being over-cautious about trading abroad. You’d think that with the barriers to international travel having been broken down over the last 20 years, trade would have expanded the same way – but no. There are countless opportunities going to waste.

The services sector is bigger than manufacturing in the UK, but with the emphasis of government promotion on exporting, there is little done to promote its international expansion. Many do consider expanding to English-speaking countries like US, Australia and South Africa, which is relatively easy. However, this neglects the 90 per cent of countries where English is not the first language.

The “free” advice on offer from UKTI appears wide in scope but, beyond information on exporting, is in fact very limited. Sometimes the free advice even seems to have the effect of discouraging expansion because it only goes so far, and then leaves the company to either purchase services or try to do everything themselves. The problem is acute with SMEs. The charges that the big consultancies make are prohibitive, and “Fear of Foreigners” and lack of language skills completes the dissuasion of doing it for themselves.

One of the biggest risks of Brexit for UK companies – and one of the best reasons for expanding overseas urgently – is that the existing skills shortage will get even worse. Business is already heavily reliant on migrant labour – there simply aren’t enough qualified employable Britons. If the current influx of well qualified young Europeans dries up, it could cause many businesses to fail.

Setting up operations abroad for this reason, especially in developing countries, is a win-win. Firstly, it enables businesses to tap into these labour markets, usually at much lower costs than employing in the UK. At the same time, the new overseas company can sell products and services in its local market, expanding the company’s business. There are many businesses already outsourcing relatively low value functions such as accounting and call centres, and high skill IT and software development.

Now is the time to look urgently at employing more highly skilled job functions abroad. But not through outsourcing. Costs are higher than they need to be, simply because of the high margin added by the overseas BPO company – and companies that send critical functions such as R&D and Customer Support abroad need to own the overseas business.

Setting up a typical overseas operation employing just ten skilled professionals delivering services to the UK would yield cost savings of around £250,000 a year, even allowing for UK liaison costs. The total costs of setup would be recovered in less than a year, and the value of additional sales to the local market comes as a bonus!

It’s neither as expensive or as risky as many assume to set up overseas subsidiaries or JV companies. There are professionals who can provide everything from initial advice through to turnkey solutions – setting up an overseas company completely – using trusted local resources to achieve results quickly and economically. Some are consultants who specialise in certain countries, through to businesses such as my own that offer unbiased advice and help to companies to set up in any country of the world.
The sooner businesses act, the sooner bosses will reap the benefits – reducing costs, increasing sales and stealing a march on the competition. The ones that do nothing now can only come to regret it.

From prime minister David Cameron suggesting London mayor Boris Johnson was a great friend albeit wrong in opinion, to former shadow business secretary Chuka Umunna and Johnson telling each other to man up, the Brexit debate has caused a few UK politicians to squabble with each other.

Article originally published on Real Business Magazine: http://realbusiness.co.uk/article/33406-the-danger-of-inaction-the-sooner-businesses-act-the-quicker-bosses-will-reap-benefits

Business Opportunities in Cuba

President Obama’s visit to Cuba and the opening up of US-Cuban relations has made headlines over the past few weeks. A major part of that story was the enthusiasm of US companies to expand into Cuba – and it gave the impression that a major corporate invasion was under way. But US sanctions remain in place (but are being eased), so despite the definite interest, it will be some time before significant deals are put into place.

For those of us in Europe, though, there’s no embargo on doing business with Cuba, and now appears to be an ideal time. Setting up in Cuba isn’t easy, of course. It’s also a destination way off the map for most companies, and there are indeed many that would struggle to benefit. However, the rewards for SMEs with a suitable business model could be huge, especially if the inevitable US invasion is “designed in”.

Why? Well, the owners of almost all SMEs will want to plan an exit route at some time in the future, and in most cases that’ll be through a trade sale. One of the surest ways of growing the value of a business is to expand internationally. If it’s the sort of business that’s likely to be attractive to American purchasers, having an operation in Cuba could seal the deal and drive substantial additional value – it would provide a fast track for US companies to operate in Cuba, simply by buying an existing business.

It used to be near-impossible to have a foreign owned or JV business in Cuba, but the Foreign Investment Act of 2014 opened up a raft of possibilities. Specifically, the right to transfer the ownership of property to a third party – and a foreign one – is now accepted. There are now expectations of over $8 billion of foreign direct investment over the next few years.

What sorts of business could benefit? Well, Cuba is not a market economy, and it’ll be a long time before consumer goods companies find it worthwhile. The major opportunities lie in tourism, infrastructure, healthcare, agriculture and technology. Of these, perhaps the most interesting is healthcare. Cuba has a very well-developed system and trains a huge number of doctors and medical staff, sending many to staff hospitals in developing nations around the world. In Cuba itself, pharmaceutical manufacturing grows every year and bio-technology is particularly strong. When the US embargoes on travel are dismantled, there will be huge scope for health tourism.

Young Cubans are well-educated and hugely enthusiastic to succeed, and businesses can rely on getting the labour force they need to develop effectively and quickly.

But as I said, it’s not an easy market to get started in. Businesses need help, even for the most basic research. Trustworthy local partners are essential, as is the Spanish language and a great deal of patience. Entrepreneurs who are brave and get over all the hurdles, though, will reap rewards – and I suspect that in many cases that will mean millions by selling their businesses on to Americans.